What happened

Shares of U.K.-based Big Pharma giant GlaxoSmithKline (NYSE:GSK) tumbled during the month of October, according to data from S&P Global Market Intelligence, losing nearly $10 billion in market cap in the process. The culprits for the drop appear to be its weaker-than-expected third-quarter operating results and rumblings about a large acquisition.

So what

The clearest issue for GlaxoSmithKline, which is more commonly known as GSK, was its disappointing third-quarter results. On a constant currency basis, pharmaceutical sales inched higher by just 2%, vaccine sales were flat, and consumer healthcare grew by a steady 2%. That's an overall increase in sales of just 2%, with sales in Europe actually declining. The company cited strong growth in new products, but pointed to divestments and generic competition to mature drugs as the culprit for its pedestrian sales growth in pharma. Comparably, GSK's revenue was pretty much right in line with Wall Street's expectations.

An ascending stack of prescription pills laid atop a messy pile of hundred dollar bills.

Image source: Getty Images.

Unfortunately, the company's bottom-line missed by about 20%, with adjusted operating profit increasing by 5% on a constant currency basis, and adjusted EPS flat year-over-year. The finger-pointing mostly goes to an 11% hike in research and development costs, and a 3% increase to its cost of sales. 

In addition to its disappointing earnings report, GSK also announced that it's considering a bid for Pfizer's (NYSE:PFE) consumer-health unit. The deal, which could be worth more than $10 billion if it were to become a reality, would expand GSK's consumer-health offerings, which generally provide modest growth and solid pricing power. However, a deal of this magnitude could put GlaxoSmithKline's superior 5% yield at risk, according to some pundits on Wall Street. GSK's dividend is arguably the greatest lure of owning this stock, so a cut would be concerning. 

Now what

I'd have to admit that buying Pfizer's consumer-health division would be a bit perplexing considering that GSK completed a major reorganization back in 2015. In a three-part asset swap with Novartis, GlaxoSmithKline wound up jettisoning its oncology division, bolstering its vaccines segment, and forging a consumer-health joint venture with Novartis, all while collecting billions in additional cash from Novartis as a result of the deal. Though GSK generates more than half of its sales from pharmaceuticals, and investors are typically fans of balance with regard to operating segment contributions as a percentage of sales, bringing a slow-growth segment like Pfizer's consumer-health division into the fold is a head-scratcher.

A person holding up a puzzle piece with a question mark drawn on it.

Image source: Getty Images.

If there is a bright spot here, GSK's next-generation respirator and HIV products are on fire. Breo Ellipta delivered 43% constant currency growth, along with 57% sales growth from Anoro Ellipta, while GSK's HIV therapies, Tivicay and Triumeq, also saw respective quarterly sales growth of 41% and 29% from the prior-year period.

At just a tad over 12 times forward earnings, and sporting a superior dividend, GSK has all the hallmarks of an income stock that could provide benefits to long-term investors. While not without risks, especially if GSK struggles to find its new identity following its reorganization, the company's respiratory and HIV segments appear to be on track. That's enough for me to suggest value and income investors take a closer look at GlaxoSmithKline.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.